Impact of Defense of Marriage Act Ruling on Retirement Programs
The U.S. Supreme Court recently declared that Section 3 of the Defense of Marriage Act (DOMA), which was signed into law by President Clinton in 1996, is unconstitutional because it denies equal protection rights which are guaranteed by the Fifth Amendment to the Constitution. This section of DOMA specifically stated that for the purpose of federal laws and regulations, “marriage” meant only a legal union between one man and one woman as husband and wife and “spouse” referred to a person of the opposite sex who is a husband or wife. However, although the Court held that Section 3 was unconstitutional, it does not require any state to recognize same-sex marriages. Individual states are still free to define marriage as they wish.
Under DOMA, gay couples who were married in their state were not recognized as married by the federal government, and were ineligible for federal benefits associated with marriage, many of which are found in the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (IRC), both of which govern the operation of qualified retirement plans.
A quick perusal of the retirement plan document maintained by our office found the following instances in which “spouse” is referenced:
- Life insurance in plans with benefits based on the lives of the participant and spouse;
- Hardship withdrawal reasons that allow for distribution on account of certain expenses of the participant or spouse;
- Qualified Domestic Relations Order (QDRO) processing, where benefits are payable to the ex-spouse after a divorce;
- Beneficiary designations, where the spouse is automatically deemed as the beneficiary in the event of the participant’s death and has to consent to a beneficiary other than him/herself;
- Joint and survivor annuity requirements where the spouse has to consent to certain forms of distribution;
- Family member designations for purposes of determining who is a Highly Compensated or Key employee or for cross-testing allocation groups that reference family members;
- Calculation of age 70 ½ required minimum distributions where the spouse’s information is factored into the calculation;
- Loan applications, where the loan requires spousal consent.
Under DOMA, a same-sex spouse would not be considered for any of the above purposes. However, now that DOMA has been declared unconstitutional, plan sponsors will have to consider whether any rights extended by the plan to a “spouse” will apply to a same-sex partner, particularly in states that allow or recognize same-sex marriages. For states that do not recognize same-sex marriages, nothing in the Court’s decision prevents those states from refusing to recognize the validity of a same-sex marriage performed in another state.
There are many questions created by the Supreme Court’s decision, primarily because not every state recognizes same-sex marriages. Which state’s law will prevail – the state in which the couple was married, the state in which they reside, the state in which the plan is located…? Employers should expect that employees will start to ask questions about their rights under this new Court decision.
Another key question is whether the Court’s decision will be retroactive, which means that earlier plan decisions could be challenged by someone who was not recognized in the past as a “spouse”.
Because there are over 1,300 federal laws that contain provisions that specifically relate to spouses, it is expected that additional guidance will be issued in the near future. What should employers do now? The best first-step will be to obtain same-sex marriage information. Gather information about employees who have same-sex spouses so that you will have an idea of the scope of the impact of future guidance. Also, review your benefit plan documents and make note of instances where “marriage” and “spouse” are referenced, as those are the areas which may be challenged and may require future revision. Finally, remind your participants to make sure that their beneficiary forms are up-to-date. Some challenges to beneficiary determinations can be avoided if individuals who are in same-sex relationships make sure to specifically list their partner as their primary beneficiary, if that is the intention. On the other hand, in states that do recognize same-sex marriages, it appears that the same-sex partner will now be able to contest the payment of death benefits to another individual, if that same-sex partner did not grant spousal consent to such payment.
Currently, only 12 states recognize same-sex marriages. However, as more states decide to recognize and allow these marriages, the impact of the Court’s decision will spread across the country and will surely reach into the office of anyone dealing with company benefit plans.